Shielded by Service: How Volunteer Board Members Can Be Protected from Liability

For churches and nonprofit organizations, volunteer board members are often the unsung heroes—faithfully serving without compensation, juggling ministry goals with legal obligations, and making tough decisions on tight budgets. But with service comes risk. What happens when a board decision leads to a lawsuit? Can volunteers be held personally liable?

Fortunately, California law offers important protections for volunteer board members—when they act in good faith, with care, and in the best interest of the organization.

The Legal Lifesaver: California’s Volunteer Liability Shield

Under California Corporations Code sections 7231 and 7231.5, volunteer directors of nonprofit public benefit and mutual benefit corporations cannot be held personally liable for monetary damages as long as:

• They acted in good faith;
• They honestly believed their decisions were in the best interests of the organization; and
• They exercised the care and reasonable inquiry expected of a prudent person in a similar role.

In other words: Serve wisely, ask the right questions, and stay informed—and the law is on your side.

What Does “Good Faith” Actually Mean?

Good faith isn't just about having good intentions. Courts have made it clear: it's about showing up prepared, staying informed, and doing your homework. Simply rubber-stamping decisions or ignoring red flags won’t cut it.

Take for example the case Palm Springs Villas II v. Parth. A board president signed contracts and took out loans without approval from the board or members. The court ruled she may have failed the good faith test—not because her intentions were bad, but because she didn’t exercise due diligence.

The lesson? Directors must do more than mean well—they must lead responsibly, ask questions, review documents, and rely on experts when needed.

Can a Volunteer Be Indemnified?

Sometimes, volunteers face legal claims—whether or not they did anything wrong. This is where indemnification comes in: it’s when the organization agrees to cover a board member’s legal costs.

California law allows nonprofits to indemnify directors, but only under certain conditions. If a board member wins their case on the merits, indemnification is mandatory—the organization must cover their legal expenses. Otherwise, indemnification is optional, but can be authorized in advance.

Here’s the catch: any board vote to approve indemnification must be made by directors who are not personally involved in the dispute. If everyone on the board is connected to the issue—say, they’re all being sued—then the organization must look to other options, like getting member approval or asking the court to allow indemnification.

What If There’s a Conflict of Interest?

If a board member stands to gain financially from a decision, they’re considered an “interested director” and must recuse themselves. For example, a board member who owns property affected by a church’s actions may be too financially tied to vote on matters of indemnification or discipline.

When all board members are “interested” in the outcome, decisions must be made through alternative methods—like court approval—to ensure fairness and compliance with the law.

Key Takeaways for Church and Nonprofit Boards

• Volunteer directors are protected from personal liability when they act in good faith, with due care, and in the best interest of the organization.
• Good faith includes making reasonable inquiries, reviewing relevant information, and relying on trusted professionals when appropriate.
• Indemnification is possible, but it must follow strict legal processes—especially when board members have personal interests in the outcome.
• Always document your decisions, seek legal advice when needed, and know your organization’s governing documents.

Churches and nonprofits rely on the sacrificial service of volunteer board members. California law recognizes this and offers meaningful protections—but only for those who serve with both heart and wisdom.

If your board hasn’t reviewed its bylaws, indemnification provisions, or director liability protections lately, now is the time. A little preparation can provide a lot of peace of mind.